India Scrambles To Make Gold Purchases Ever More Difficult: Hikes Import Tax And Duties Again

Tyler Durden's picture

Three weeks ago it became clear that in its fight to curb consumer thirst for gold products, India, whose population is the largest single source of gold consumer demand (at least for now, soon to be replaced with China) is losing said fight, after its finance minister made it very clear that "demand for gold must be moderated" leading to a hike in import taxes to 4%. Needless to say, there is no more certain way to increase demand for a given commodity (or gun, ahem US government) than to hint that the government will make its procurement problematic. Sure enough India blamed its record current account deficit on precisely this: the soaring imports of gold as locals revert to a currency far more appreciated and respected than paper, a topic further explained when we showed the exponential surge in gold-backed loans outstanding in India. Indeed, at least in this country, there is one safe and abundant collateral product which, contrary to the US, is as good as money - gold - whose consumer demand in just India and China is shown in the chart below.

Combined India and China consumer amount to some 35% of total gold demand, and 55% for just jewelry. And while we have tracked the relentless gold gross import surge into China, we have not done the same with India, because we assumed these were implied.

It is precisely the importing of gold that India is once again doing its best to curb, this time by boosting import duties on gold dore bars by a 150% from 2% to 5%, a day after it once again hiked gold import taxes, this time by 50% from 4% to 6%.

Form Reuters:

India more than doubled the import duty on gold dore bars and ores on Tuesday, hard on the heels of a hike in taxes on refined gold, as the government tries to curb demand in the world's biggest importer of bullion and rein in a record current account deficit.

 

India, whose gold imports total about 800 tonnes a year, hiked the import duty on gold dore bars to 5 percent from 2 percent. Dore, an alloy of gold and silver that is used by refineries to produce pure gold, accounts for about 100 tonnes of annual imports.

 

The move came one day after the government increased import tax on gold to 6 percent from 4 percent, aiming at closing the gap on import duties on bullion bars and dore, which had become an attractive import since last year after the government hiked tax on gold imports to 4 percent.

"It was a duty arbitrage that they have plugged," said Shekhar Bhandari, executive vice president of treasury at Kotak Mahindra Bank. "Otherwise people would not import through normal channels but import dore bars."

 

"There won't be much impact. Dore imports will increase day by day. The difference of one percent will attract refiners," said Harmesh Arora, director with the Bombay Bullion Association, a trade body.

 

Arora said refiners have been trying to tap small miners in Ghana, Kenya and other African countries for dore bars

 

Gold mines often process their gold-bearing ore on site and send dore bars to gold refineries to be processed into tradeable bars of high purity at 99.5 percent gold content or more.

 

"If there is 700 tonnes of imports for the Indian market, this can be totally converted into dore market," said Arora.

 

India's total annual gold consumption is about 900-1,000 tonnes and the difference is made up mostly from recycling.

 

Rising imports of gold have worried the government, which is battling a record high current account deficit. It is trying to curb gold imports to about $38 billion in the year to March 31, 2013, down from $58 billion a year earlier.

Ironically, while the ongoing piecemeal attempts to deal with the "current account imbalances" driven by the people's desire to park their money in real money will fail, what the government's intervention will do is force even more demand for gold in anticipation of even more government attempts to make procuring gold increasingly more difficult. But don't tell the BIS - for them this headline is nothing more than what it implies superficially, and thus, a good reason to sell gold.

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francis_sawyer's picture

Gold is not money, It's TRADITION... Ben Shalom Bernanke...

~~~

http://www.youtube.com/watch?v=auaTdFOj5c8

Pladizow's picture

If you have a trade account deficit, what better thing than gold to account for that deficit!

4% tax - so fucking what, how much less gold have the Indian's purchased as the price has gone from $250/oz to $1,700/oz!

Oh regional Indian's picture

Think another way. Given that the demand and it's escalation is a given, it just puts more money into Governmant hands.

All smoke and mirrors and deceptions on a grand scale.

Meanwhile Food inflation is off the god-dammned charts and the poorer sections of society keep hocking their gold to Gold Loan companies for daily needs.

They get 50-70% face value for their "deposited" gold at a 15-35% (yes) rate for monies handed out.

The government here (everywhere) is the bitch and the bastard in this story.

The little guy will not be allowed to win the gold game. No way.

ori

trav777's picture

if they weren't taking a dump all over the rupee, maybe people wouldn't flock to gold..?

whotookmyalias's picture

Demand for Gold must be moderated.  Of course. How else can the government maintain control over the masses? I'm slightly surprised to hear such a bold statement, but then again government officials seem to have nothing to fear these days unless they are a brutal dictator in the Middle East.  I guess there is no downside to their arrogance and saying out loud what they have always thought.  Example: Obama 2nd term.

espirit's picture

Let's see.  Buy out of India, ingest on the way to the U.S. and walk right in.

TSA is removing the X-ray scanners, lol.

phyuckyiu's picture

Must. Close. Barn. Door.

whotookmyalias's picture

What else to invest all that hard earned money earned from the jobs outsourced from the US?

Oh regional Indian's picture

The only reason that business is alive is because the Rupee is being held down, severly. If it was allowed to come anywhere near intrinsic value, the outsourcing business would be up in smoke.

 

phyuckyiu's picture

We care about the little brown people. Really!

nope-1004's picture

Why doesn't the Indian gov't just do what the US does with narcotics:  Ban them entirely!  That oughta curb demand.  Prices should fall too..... lol.

Price controls NEVER work.  And with a few billion more people on the earth than the previous global reserve currency crisis throughout history (Romans, Spain, GB), the rush to the other side of the boat will be something to behold when it happens.  Good luck central bankers!

 

No Euros please we're British's picture

Fuck you central bankers.

I prefer the old english translation of good luck, in this context.

10PastMidnight's picture

Ah yes the obligatory gold is not money but it should read "Fuck You Ben Shalom Bernanke!!"

 

Pretty sad when those remarks can be used for all the horse shit that comes out of the Fed and the MSM.

FinkPloyd's picture

The real news on GOLD is not the TAX Increase.

GOLD ETFs in India look like they will move away from fully allocated bullion to lending out the gold for interest. (Thus causing fake surge in supply of physical, and more paper gold than phys.)

From Goldmans Sachs Asset Management: 

http://www.moneycontrol.com/news/commodities/see-gold-etfs-earn-interest-post-import-hike-goldman-sachs_811400.html

( Goldmans Sachs Asset Management incidently bought a company operating a popular GOLD ETF  in july 2011 http://www.benchmarkfunds.com/products/goldbees/overview.aspx )

Freegold's picture

"Shah says gold ETFs can now earn interests. "This whole process will help in terms of reduction of imports at that point in time where in we give the gold to the bank. The bank will there onward lend to the jeweller."

 

So Shah (from Goldman Sachs) tells someone to hand over their gold and by that will earn intrest, less than 3%. Wow, where do I sign?

//Sarc off

ItchyBeard's picture

Fuck this government. This Indian will be cashing his next paycheck and buying Gold.

If I pay in cash my jeweller doesn't charge VAT, so that's another few Rupees I won't let them steal from me.

Buckaroo Banzai's picture

The bigger the turd, the longer it takes to flush. But, a few more revolutions around the bowl, and we're done.

GetZeeGold's picture

 

 

Tradition is getting expensive.

Manthong's picture

Expensive?

Hmm..  how much is a flotation buoy worth on a sinking ship?

edifice's picture

Not much, if you can't swim beyond the radius of the undertow. Just saying, there's more to it than gold. But, we all know this, here.

Temporalist's picture

And the sharks...don't forget the sharks.

mayhem_korner's picture

 

 

Ah yes, the sharks:

Japanese submarine slammed two torpedoes into her side, Chief. We was comin' back from the island of Tinian to Leyte. We'd just delivered the bomb. The Hiroshima bomb. Eleven hundred men went into the water. Vessel went down in 12 minutes.

Didn't see the first shark for about a half-hour. Tiger. 13-footer. You know how you know that in the water, Chief? You can tell by lookin' from the dorsal to the tail. What we didn't know, was that our bomb mission was so secret, no distress signal had been sent. They didn't even list us overdue for a week. Very first light, Chief, sharks come cruisin' by, so we formed ourselves into tight groups. It was sorta like you see in the calendars, you know the infantry squares in the old calendars like the Battle of Waterloo and the idea was the shark come to the nearest man, that man he starts poundin' and hollerin' and sometimes that shark he go away... but sometimes he wouldn't go away.

Sometimes that shark looks right at ya. Right into your eyes. And the thing about a shark is he's got lifeless eyes. Black eyes. Like a doll's eyes. When he comes at ya, he doesn't even seem to be livin'... 'til he bites ya, and those black eyes roll over white and then... ah then you hear that terrible high-pitched screamin'. The ocean turns red, and despite all your poundin' and your hollerin' those sharks come in and... they rip you to pieces.

You know by the end of that first dawn, lost a hundred men. I don't know how many sharks there were, maybe a thousand. I do know how many men, they averaged six an hour. Thursday mornin', Chief, I bumped into a friend of mine, Herbie Robinson from Cleveland. Baseball player. Boson's mate. I thought he was asleep. I reached over to wake him up. He bobbed up, down in the water, he was like a kinda top. Upended. Well, he'd been bitten in half below the waist.

At noon on the fifth day, a Lockheed Ventura swung in low and he spotted us, a young pilot, lot younger than Mr. Hooper here, anyway he spotted us and a few hours later a big ol' fat PBY come down and started to pick us up. You know that was the time I was most frightened. Waitin' for my turn. I'll never put on a lifejacket again. So, eleven hundred men went into the water. 316 men come out, the sharks took the rest, June the 29th, 1945.

Anyway, we delivered the bomb.

(Quint, JAWS)

francis_sawyer's picture

Don't forget the squid either...

Colonel Klink's picture

Can't wait for the calamari!  Deep fried bitchez!!

Manthong's picture

 Indianapolis..    that story always moved me.  : (

ZeroAvatar's picture

Indians (dot) can sew gold into the linings of their gold shirts.

Dangertime's picture

There is no Government, anywhere, that has the best interests of the citizen in mind.

AgAu_man's picture

And in all countries, a small group of a few hundred families own 80% of the country. 

And even though it is effectively their country and 'national security' means the security of their 80%, they still want the peasants to feel like it's 'their' country.  And they want the peasants to be patriotic about and fight for 'their' country.  Sleep on that!

Stoploss's picture

This will have a detrimental effect on the deal.

Oh well.  We were warned.

mayhem_korner's picture

 

 

The secondary market, muppetz.  Phyzz premiums get a chubby from import taxes...

ebworthen's picture

If there weren't so many sheeple in the U.S. who want a Chase or Capital One credit card instead of Gold or Silver they would be doing this here; if not trying to confiscate it.

I know we aren't on the gold standard anymore, but my one fear about putting too much of my savings into PM's is that those motherfuckers will make it illegal to buy or sell physical in their drive to get everyone into binary (no cash) banking so they can track every last penny.

Temporalist's picture

There will always be a substitute.  Gresham's law.  They will move to local currencies like they are now doing in Greece for example.  Or maybe bags of rice and sugar...or laundry detergent like the SNAP crowd.

ParkAveFlasher's picture

There is a reason why they are called "precious" metals. 

A Lunatic's picture

Eventually, anyone wishing to remain independent in any meaningful fashion will be forced to rely heavily on the underground/black market economy. Keep stacking..........

ParkAveFlasher's picture

Riffing on "underground", while I don't believe that Edgar Allen Poe wrote "The Pit & The Pendulum" for physical holders, it's a worthy meditation and I believe an appropriate metaphor.

LawsofPhysics's picture

Will china be happy about this?  my guess is no.  Gold cannot go parabolic until china has more physical, India not playing along, not good.

holdbuysell's picture

On gold, and courtesy of TBP, this article by Gonzalo Lira provides an interesting perspective via analogy:

http://gonzalolira.blogspot.com/2013/01/why-isnt-gold-higher.html

LawsofPhysics's picture

At the heart of your conclusion is the hypothesis that you can't separate the paper and physical market for gold.  You propose that the paper and physical markets are not and cannot decouple.  FAIL.  Go visit India.  Moreover, there are numerous examples of physical and paper markets decoupling throughout history.  Unsually right before policies of confiscation and war are implemented.

francis_sawyer's picture

Perfect... GL doesn't SEE the conspiracy (so it's IMPOSSIBLE that there is one)... Pffffft!

~~~

Yeah... & nobody has PROVEN any conspiracy behind WTC7 coming down [so it must be true that it collapsed in its own footprint by fires which started when boxcutter weilding arabs flew planes into WTC1 & 2]...

holdbuysell's picture

I'm with you LOP. I found the perspective different and plausible such that it was reasonable to entertain without necessarily accepting it. Someone here may find value in the analogy based on their experiences. I'm a fan of integrating information from disparate sources in order to draw conclusions, so maybe someone here finds this helpful.

francis_sawyer's picture

The moon is made out of cheese... Study it... Consider it... Maybe someone here finds this helpful...

mayhem_korner's picture

 

 

So the real purpose of tax policy is to coerce behavior, right?

edit: gotta run...a drone suddenly appeared and canvassed the 'hood

Temporalist's picture

Protecting the $1690 and $32 price points for Au and Ag. 

...must...stop...metals...rising...

mayhem_korner's picture

 

 

As a buyer, this makes me...well...just plum happy.  :D

AndrewJackson's picture

And to think some people still have the notion that the elites are just misguided and have the wrong policy in mind. These nwo leaders are out to destroy the citizens they rule over and will do anything to prevent them from saving their weatlth in real money.

rehypothecator's picture

"after its finance minister made it very clear that "demand for gold must be moderated"

 

Why the hell does any government agent on Earth think there is any government obligation whatsoever to use its coercive power to control the desires of its citizens.  It's creepy.  

mayhem_korner's picture

 

 

That's what government is all about, Charlie Brown...

10PastMidnight's picture

At least they had the balls to come out and say it, you won't find that fortitude in the DC 535. Their first remark on gold will be this, "your gold it belong to us"